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China Trade-Off?

Is America trading off its strategic interests in the Pacific in return for greater trade with China? If so, is the potential of the Chinese market worth this sacrifice?

Protecting American strategic interests in the Pacific and improving trade with China are not mutually exclusive goals. Through discipline and consistency in America's foreign policy toward China, these interests can be balanced.

JAMES A. BAKER, III Senior Partner, Baker Botts L.L.P, and former Secretary of State and Secretary of Treasury

Like it or not, China today is key to Asian stability. And, sooner rather than later, it will be the largest market in the world. Both America's strategic and economic interests are more likely to be advanced by engaging it in vigorous trade, diplomatic relations, and other political and economic relationships than by trying to ignore, isolate, contain, or sanction it.

One important such relationship would be membership for China in the World Trade Organization (WTO). The key is that China should be admitted on the same terms as other members, with no special treatment. The standards for admission should not be relaxed, whether they require China to open its markets, protect intellectual property, or take other steps toward liberalization. China should be required to reform its economy, both internally and by opening its markets to free trade, in the same way other WTO members do.

WTO membership will strengthen the hands of the economic and political reformers in China, improve the lives of the Chinese people, and help stabilize and normalize China's relations with the rest of the world. In many ways, Chinese accession to the WTO will benefit America and China's Pacific Rim neighbors even more than it benefits China. For America to oppose China's entry into the WTO, if the terms of entry are fair to us, is to cut off our nose to spite our face.

America will continue to have differences with China, of course, particularly on human rights, proliferation of weapons of mass destruction, and Taiwan. America should -- and will, I am convinced -- continue to be tough on these issues, even after China joins the WTO. But this will require America, among other things, to reaffirm its commitment to the Taiwan Relations Act. It will also mean making no deals about opposing or delaying Taiwan's accession to the WTO, foregoing any regional missile defense preparations necessary to defend America's interests in the region, or reducing its credible military presence in the Pacific. That presence must be maintained to offset any possible move by China for regional hegemony.

Turning its back on China might make the U.S. feel good, but it would be counterproductive to American interests. China is not an enemy, at least not yet, but America can make her one. Of course, the best way to find an enemy is to look for one. And when the U.S. talks about containing China by opposing entry into the global trading system, it is, in my opinion, looking for an enemy.

PAUL BRACKEN Professor of Management, Yale School of Management.

From China's standpoint, no trade-off exists between strategic interests and increased trade. But from America's perspective, interestingly, a trade-off does exist. This perspective, or belief, is part of a tradition of using foreign policy as domestic psychotherapy. "Americans see a rigid trade-off between economic success in an age of globalization and increasing military power because it needs a comforting myth about good and evil in a complex world. Forgetting history, America cannot imagine how a country can pursue parallel economic and military modernization at the same time.

But China's two supposed camps -- one for liberalization and modernization, the other for militarization -- exist in the American mind more than they actually do in China. In the 1990s, China opened up more than ever before. Business deals, the Internet, and mass consumption have all emerged in the big cities as part of modern China. Beijing had trouble controlling the deals, leading to greater change and economic decentralization. The Internet is hard to control from the standpoint of authorities without simultaneously destroying its positive transforming effects. In the cities, the cell phones, the Avon-calling-door-to-door saleswomen, and the McDonaldization of China capture what American visitors perceive as China's future. But there is more to the future than this.

China has been transforming its military into a force with the capacity to threaten the U.S. presence in the western Pacific. More modernization is occurring within China's military today than under the old Communists, because for them the army was a tool for domestic, not foreign policy use. True, the Army is being cut in size, but this frees up resources for deploying hundreds (if not thousands) of ballistic missiles, naval expansion, anti-satellite weapons, and a nuclear modernization that puts teeth into China's deterrence of the U.S. For China, a country should be strong economically and militarily.

The United States should not make trade contingent on changing this parallel development in China. It could tighten export controls. But aside from pointlessly aggravating Sino-American relations it cannot roll back the clock to a pre-industrial China, one that did suffer a rigid trade-off between economic growth and military capacity. The long era when China was dominated by outside powers is coming to a close, and no degree of policy coordination between economic carrots and security sticks by Washington is going to change this.

NICHOLAS EBERSTADT Henry Wendt Chair in Political Economy, American Enterprise Institute, and member of the Harvard Center for Population and Development Studies.

The Clinton Administration's China policy has been hapless and confused from the outset, and remains so today (notwithstanding a certain amount of on-the-job training). It should be no surprise that a team which dreamed of entering into a "strategic partnership" with Beijing would suffer recurrent tactical and strategic blunders in its dealings with China. Breathless pursuit of the vaunted "China market" without heed of our allies' security (or even our own!) has been, unfortunately, all too characteristic of this Administration's approach to the Asia-Pacific region.

If one had only the Clinton-era record to go by, one might indeed conclude that promoting commerce with China and promoting American security in East Asia are inimical objectives. Yet they are not. Expanding commerce with China can and should play a role in strengthening the liberal economic and political international order the United States has struggled to fashion in Asia and around the world since the end of World War Two. For America to do so, however, its statesmen must first have a clear appreciation of China's current circumstances -- as well as a firm grasp of its own interests in the Pacific.

Communist China is a rising economic and military power with a revisionist leadership intent upon recasting the world order. But this revisionist state should not be likened to the once-monolithic Soviet Union, or even to Wilhelmine Germany, whose ambitious government was only overturned by devastating defeat in a total war.

As China's rulers know very well, the economic and social modernization they rely for their external might is eroding the internal control system upon which the regime rests. Beijing's hysterical crackdown against the Falun Gong movement -- a loosely-organized, peaceful, non-political association -- reveals not strength, but rather profound self-perceived weakness.

Even more terrifying to Beijing is the democratic example across the straits on Taiwan. The Republic of China (Taiwan), remember, was also a Leninist one-party state. But it evolved peacefully into a multiparty democracy, and has just displaced its long-tenured KMT party through free elections.

The old men in Beijing fear that Taiwan provides a glimpse into their country's future -- and who today can prove them wrong? Yet if peaceful regime change lies in store for China, we should recognize that international trade will likely be one of its instruments. For China's increasing contact with the liberal world economy heightens ongoing "internal contradictions" that strain a brittle dictatorship even as they promote individual autonomy and nascent rule of law.

Given America's vital interest in the health of the liberal international order, U.S. policymakers should welcome China's accession to the World Trade Organization and the advent of permanent normal trade relations between Washington and Beijing. Both of these steps will strengthen the liberal world economy, generate prosperity, and advance economic, social, and ultimately political change within China itself.

But trade policy should never again be mistaken in Washington for a comprehensive security policy. If America's interests in East Asia are to be championed effectively, America's "China policy" must also embrace three long-term strategic precepts.

First, America must deny Beijing the dangerous hope that it may emerge as a "peer competitor" to the United States a few decades hence. In practice, this will mean not only a strong American defense commitment, but devising and enforcing a much stronger regime of multilateral export controls on military and "dual use" technologies than is in force today. Reviving COCOM-style international controls would impede Beijing's efforts at weapons-of-mass-destruction proliferation and obstruct its incipient "revolution in military affairs." It would have many salutary effects beyond China's borders as well.

Second, strengthening America's security system in East Asia will require shifting from the bilateral, Washington-centered ties that typify the alliances in the region today to something more like the deep, multilateral network we know in Europe. In order for multilateral security ties in East Asia to flourish, however, Japan must at last become a "normal nation." After all, distrust of Japan necessitated America's "hub-spoke" relations with its allies in the Pacific in the first place. Part of America's China policy must therefore encourage continued evolution in Japan.

Finally, America must be ready to defend democracy in Taiwan unequivocally. Taiwan is a legitimate and freedom-loving state -- like other small, endangered "pariah states" that America has defended in the past. Taiwan deserves a formal introduction into the "international community"; parallel accession with China into the WTO might be a good start to this process. When Taiwan's security is fully assured, Taipei can enter into deep and meaningful dialogue about the future with Beijing. Taiwan's interests in that dialogue and its outcome will not be different from America's own.

Of course not! What "strategic interests" are being sacrificed by greater trade with China? The implication of the question is that there would be some strategic gain for the United States in trading less with China. I assume that implies the United States would somehow be the strategic beneficiary of increased European trade with China and of increased Japanese trade with China while itself trading less with China. Such a line of reasoning -- if it can even be called reasoning -- can be entertained only by those who thrive on predicting American-Chinese hostility and are determined to make their predictions into self-fulfilling prophesies.

ZBIGNIEW BRZEZINSKI Counselor, Center for Strategic & International Studies and former National Security Adviser.

The answer to that question will be revealed over the next month as the Clinton Administration and Congress deal with two bills where trade and national security questions intersect: the bill to grant China permanent normal trading relations (PNTR) and the Taiwan Security Enhancement Act (TSEA), which will beef up U.S. security relations with the island democracy in response to new threats by the Beijing government. The act passed the U.S. House of Representatives on February 2 by 370 to 41 votes, and awaits action in the Senate.

CLAUDE E. BARFIELD Director of Trade Policy Studies, American Enterprise Institute and co-author of Tiger by the Tail: China and the WTO (AEI Press, 1999).

Based upon the astonishing market-access concessions that China made in the November bilateral deal with the United States, proponents of China's entrance into the World Trade Organization (and permanent normal trade relations) have a strong case. President Clinton is correct when he argues that "In the entire history of trade agreements, I don't think there's ever been one weighted more in our favor."

Over the past several months, Taiwanese and western Pacific security issues have become inextricably entwined with trade policy -- specifically, after February 21 when China issued a White Paper and changed the terms of the U.S./China/Taiwan compromise on security and diplomacy in the region by warning that it would intervene militarily against Taiwan if reunification talks extend beyond a certain time.

Enter the TSEA. The Clinton Administration has adamantly opposed the legislation, but there are three reasons it should reverse course: (1) The U.S. should give a firm, unified response to China's heightened pressure against Taiwan; (2) the TSEA, as it passed the House, represents a reasonable basis for negotiating such a response by the President and Congress; and (3) some political accommodation with Congress on Taiwan security will be vital to achieving a majority in the House for PNTR -- particularly from Republicans who must provide a large majority of the votes.

The TSEA establishes closer military relations between the U.S. and Taiwan but stops well short of creating a formal alliance. Among other things, the act mandates reports on Taiwan's defense needs, new military personnel and training exchanges, and assessments of the capability of U.S. forces to respond to a military "contingency" in the region. The President might negotiate some changes -- for instance, pressing Congress to state explicitly that the U.S. does not support Taiwan independence. But in the final analysis the TSEA is a pragmatic, non-inflammatory response to a situation which China brought upon itself.

HARALD MALMGREN President, Malmgren Group and former Deputy U.S. Trade Representative.

Thus, the correct course of action is for Congress to pass both the PNTR and the Taiwan security act.

President Clinton has definitely been trying to make friends with the present Chinese leadership, and in the process promote American trade and investment interests in China. But it would be a stretch to argue that there is an underlying strategy to trade off American interests in other parts of the region in order to secure economic advantages in China. Strategic thinking is not characteristic of the Clinton Administration.

The Administration has been excessively accommodative whenever China talked tough about Taiwan or was found to be helping rogue nations. On the other hand, it is not evident that these weak responses from Washington were aimed at securing enhanced economic opportunities, or were simply aimed at avoiding confrontations with China that might require showing American military muscle.

The Clinton Administration's tactics have been based upon the premise that the present Chinese leadership, and particularly President Jiang Zemin and Prime Minister Zhu Rongji, are the hope for the future. The argument is: Work with these people to open the Chinese market and bring China into the World Trade Organization, and market forces will then bring greater individualism and democracy. This may be wishful thinking. Jiang is nearing the end of his term. A quiet revolution is under way in the power structure of China, and what comes next may not be so agreeable. Communist hard-liner Li Peng, neutralized for a while after Tienanmen Square, is now in the ascendant. Using his base as head of the National Peoples' Congress (NPC), and with the support of the military, he has pushed a new law through the legislature placing other national decision bodies under the authority of the NPC. Even economic and trade negotiations with other nations are to be brought under the supervision of the NPC. Also included in this legislation are limitations on the discretion of local and regional authorities. They can no longer take decisions inconsistent with the NPC's actions and policies.

Where does Li Peng want to take China? He and his supporters want to restore central direction of the economy, ease the pains brought by market forces, and take some of the wealth of the coastal regions and move it westward to build up the internal economy. The slogan is "Go West," and the real meaning is restoration of the Communist command economy, and central guidance over economic allocation in order to pursue regional political priorities.

The Chinese economy has been fragmenting for some time, with more and more decisions taken by local authorities, or by private enterprises. One could say that China today is characterized by "one flag, but many governments." Li Peng wants to reverse the decentralization and restore "one flag, and one government." This could well generate political and economic shocks throughout China, and would tend to hurt foreign enterprises as renewed nationalism played out. Li Peng might succeed. But we cannot role out an ending to this strategy like that of the former USSR: breakup of China, or "more flags than one." Li Peng and his allies probably recognize this danger, which is why they also want to step up security confrontation with the U.S. The thinking is to make things difficult for the Americans, so they will slowly tire of involvement in the region. Make Taiwan too costly to protect, especially by building up missile bases which directly threaten Taiwanese territory, and the Americans will reduce their military presence in the region. Protest every American sign of support for defense of Taiwan, and limit the ability of the U.S. to assert its influence. A resurgence of Chinese nationalism, with hints of dangers from abroad, could help to maintain control of the central government leadership for a somewhat longer period. This strategy could be bad for foreign businesses, because it would most likely entail an assertion of nationalism in dealing with them, at least from time to time,

Thus, the U.S. government may indeed be endangering American security interests by behaving so weakly in response to challenges posed by the emerging hard-line power wielders in Beijing. Bringing China and its economy into the WTO is a good thing to do. But placing Chinese accession to the WTO as the only American priority would be an historic mistake.

PATRICK M. CRONIN Director of Research and Studies, United States Institute of Peace.

The China paradox is that 5000 years of civilization may now hinge on decisions made in the next five years. It's not that China is on the brink of extinction, but rather that modern China may be on the cusp of creation.

The mainland's accession into the World Trade Organization can be a powerful if insufficient step in guiding China's regime toward making the right choices during these tumultuous times. Timing can be of critical importance in international affairs. Consider, for instance, the impact Chase Manhattan Bank's 1985 refusal to roll over loans to Pretoria had on precipitating the speedy demise of apartheid. Such choices may not be available several years from now. The strategic trade-offs are almost completely in favor of WTO accession for China.

First, WTO membership is one of the best means of accelerating progressive economic and political forces in China. Implementation requires instituting a basic rule of law (without which, Adam Smith recognized, there can be no sustained economic progress). It also necessitates a sound banking system and foreign direct investment. By helping to reinforce China's need for these economic essentials, WTO membership advances the rise of a new Chinese middle class. Over time, the Communist Party will have to find ways to accommodate this new source of power, and, hence, WTO membership can hasten the demise of communism in China.

Second, China's WTO membership also offers the U.S. significant dividends in the short term. It does this most fundamentally by helping to preserve peace across the Taiwan Strait. While the deep and growing economic interdependence between the mainland and Taiwan is not an ironclad guarantee of peace, it is the most salient common interest shared by the cross-strait rivals. WTO membership for the mainland and Taiwan is one of the best policies for underscoring that common interest and getting both sides to step back from the creeping militarization of the issue. The WTO provides a mechanism for simultaneously permitting and requiring enhanced interaction from a position of parity.

The mainland, Taiwan, and the U.S. all stand to gain if they can use economic rationales to avoid a fight over Taiwan. Conversely, all will lose if political leaders cannot find a way to return to a stable political framework predicated on real common interests. WTO may be the best excuse Jiang Zemin has to undertake limited confidence-building measures, such as pulling back some 200 missiles recently deployed across the strait. The absence of WTO membership would only strengthen the most hard-line elements in both the party and the military.

In short, although WTO membership is no substitute for a prudent security policy built on alliances, forward presence, and deft diplomacy, it brings China into the twenty-first century more than any other single initiative. It also serves America's near- and long-term strategic objectives.

YONGHAO PU Senior Economist, Bank of China International, London.

I would not put the issue this way for a number of reasons. First, let us take a global view. According to data provided by the U.S. Department of Commerce, the merchandise exchange with China accounted for about 1.1 percent of U.S. total external trade in 1980, compared with about 2.3 percent with South Korea. In the ensuing twenty years, America's total external trade volume has gone up 2.6 times, while China has embarked on economic reform and open door policies. China's external trade and capital inflow has also increased substantially. Even so, merchandise trade with China only accounted for about 5.4 percent of total U.S. trade in 1998. Given the fact that China is now the fourth largest economic bloc after the United States, the Euro area, and Japan, and given the fact that U.S. trade with the Euro area, Japan, and the whole Pacific area excluding China accounts for about 14.7 percent, 11.3 percent, and 25.8 percent, respectively, of total U.S. trade in 1998, its trade with China is still significantly underweight.

Second, China's export industry, dominated by labor-intensive products or processing trade, has a different market structure from most of its Pacific Rim neighbors. Machinery, electrical goods, and transportation equipment (the higher value-added goods) made up only 27 percent of China's total exports in recent years. On average, only about a quarter of China's exports overlap with rival Asian countries. Most Asian countries are on a higher rung of the technology ladder. Third, cheap imports from developing countries such as China have been long blamed for stealing jobs or widening income inequality in the U.S. So far I have not come across any solid evidence to support this argument. On the contrary, the U.S. has been experiencing the longest economic boom with the lowest unemployment rate in its history. Even if the asset markets overheat, U.S. consumers are benefiting from low prices and mild inflation, largely due to lower import price. Perhaps more fundamentally, under external pressure from those cheap imports, the U.S. has been able to develop a strong comparative advantage not only in technology and other skill-intensive sectors, but also in less skill-intensive sectors -- such as the textile and the glassware industry -- by raising productivity and applying new technologies. As such, the U.S. is now well-positioned to take advantage of expanding global trade and investment opportunities. True, the U.S. is currently running high trade deficits. But it is precisely because of its global leadership in new technologies that the U.S. receives the world's largest capital inflow which supports technical innovation and finances the trade deficit, thereby avoiding becoming a candidate for financial crisis.

In summary, U.S. strategic interest lies in the success of China's ongoing economic reforms and its stable progress toward becoming a more democratic society with rule of law. But this will require economic co-operation within the international community, and trade is obviously one of the most important channels to convey such support. In this aspect, I certainly cannot see any trade-off of U.S. interests in other Pacific Rim countries.
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Publication:The International Economy
Geographic Code:9CHIN
Date:May 1, 2000
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